The Consumer Financial Protection Bureau (CFPB) has been in the spotlight lately, with courts and congressional Republicans zeroing in on the agency's unconstitutional structure that leaves its head—currently Richard Cordray a likely future Democratic candidate for Ohio governor—in possession of vast powers, accountable to no one. Sen. Ben Sasse has dubbed Cordray "King Richard," and President Donald Trump has been threatening to fire him.
It's just the latest scandal for the CFPB, which a few years back got itself in hot water for collecting reams of consumer data, undercutting privacy rights while putting lots of potentially sensitive personal information at risk in the event of a hack, and has been in the firing line nearly continuously since its inception for spending lots of taxpayer cash on everything from high salaries to luxurious overhauls of its headquarters.
Now the CFPB may be headed back into big doo-doo, thanks to a rule it is pursuing that would allow it to share communication between an entity it regulates and that entity's lawyer with a slew of other government regulators—potentially even with foreign governments.
The rule would also relieve the CFPB from any requirement that it inform an entity it regulates that it's sharing such information with Congress, and bar entities it regulates from sharing any correspondence related to CFPB enforcement without the agency giving a proverbial thumbs up. It's obviously a big boon to a big government regulator, written by and for big government regulators. Unsurprisingly, it's also being decried as a straight-up erosion of attorney-client privilege, and something that jeopardizes a core, constitutionally protected civil liberty.
In comments on the proposed rule, the American Bar Association—an entity that more often than not seems to side on policy with Democrats like the ones who authored Dodd-Frank and act as protectors of the CFPB—writes that, "each such disclosure of privileged information by the CFPB to a non-federal agency or Congress could endanger the privileged status of the information." In other words, every time the CFPB discloses privileged information, they're making sure that legally, it's no longer confidential. Or, you have the right to a lawyer, but what you and your lawyer say to each other is not really private and can totally be used against you.
This is so because under federal case law, if privileged communication is shared with any third party, even a federal agency, its confidentiality evaporates; the only instances in which this is not so are when it's shared with a relatively narrow set of third parties, explicitly listed in actual legislation. The ABA argues that CFPB's attempted erosion of attorney-client privilege matters because preservation of it underpins "fundamental rights to effective counsel." So, in this rule, we have another example of itty-bitty, little-discussed, not-very-interesting regulation that, if put on the books, will put more civil liberties on the chopping block—in this case, one protected by the Sixth Amendment.
Clearly, the civil liberties immediately at risk here are those of financial service providers themselves—not you or me (unless, say, you own an entity the CFPB regulates or is trying to regulate). The problem, though—as ever—is when you start eroding a right for one arguably undesirable person, you tend to end up eroding it for all people. Once you set a legal precedent, it has a tendency to stick around, and be invoked in instances in which the people who conjured it up in the first place never predicted. Don't believe that? Just ask President Obama, whose expansion of executive authority is now being used to undo his signature health-care law.
For this reason, the ABA is asking the CFPB to rewrite its rule and narrow it. House Republicans, meanwhile, are objecting to pursuit of the rule full-stop, demanding in a letter that CFPB Director Cordray "provide the Committee with the statutory authority on which the Bureau relies… and please further indicate what legal safeguards exist to prevent the Bureau from abusing the power it proposes to grant itself in this proposal."
That information would, of course, be useful to have, but is hardly the point. Even if the CFPB had the authority to do this under Dodd-Frank, and even if it had some guidelines in place to prevent its use of the rule from getting out of hand, curtailing attorney-client privilege is a bad idea, and one that has implications in a slew of other areas not pertaining to nasty banker types.
Democrats, especially Sen. Elizabeth Warren— who thought up the CFPB— continue to go to the mat defending the agency, but it's becoming increasingly apparent that for as much as the CFPB has a certain populist appeal and likes to position itself as consistently sticking up for the little guy against big, gross Wall Street institutions, it may not be fully thinking through the effects of its actions, or their implications for maintaining a system of strong civil liberties protected by the Constitution. Worse, the CFPB may just take the view that civil liberties are unimportant things that can and should be dispensed with so that progressive goals of targeting the financial services sector can be met. Either way, this kind of small-ball, unsexy regulation is exactly the kind of thing that should be watched by liberty lovers for its precedent value alone, and something that demonstrates why scrutiny of supposedly well-intentioned government regulators remains important.
Liz Mair is a libertarian Republican political consultant. As the founder, president and owner of Mair Strategies LLC, she advises clients on an array of technology, tax, health care, and financial services policy matters.
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